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Irrigation Technology Adoption in the Texas High Plains: A Real Options Approach

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Author Info

  • Seo, Sangtaek
  • Segarra, Eduardo
  • Mitchell, Paul D.
  • Leatham, David J.

Abstract

Water scarcity has been a significant issue for several decades in the Texas High Plains, with agriculture identified as the main activity contributing to this scarcity. To address this issue, much effort has been devoted to developing and encouraging adoption of sophisticated irrigation systems with high levels of water application efficiency, such as the low energy precision application (LEPA) system, subsurface drip irrigation (SDI), and variable rate irrigation (VRI). In this study, the economic feasibility of these irrigation systems is evaluated in cotton farming in the Texas High Plains using a real options approach. Results find that only the LEPA system is profitable under current conditions. The VRI system is profitable with high cotton prices (above $0.72/lb), while SDI is not profitable under any conditions explored.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21427.

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Date of creation: 2006
Date of revision:
Handle: RePEc:ags:aaea06:21427

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Keywords: Resource /Energy Economics and Policy;

References

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  1. Gilbert E. Metcalf & Kevin A. Hassett, 1995. "Investment Under Alternative Return Assumptions: Comparing Random Walks and Mean Reversion," NBER Technical Working Papers 0175, National Bureau of Economic Research, Inc.
  2. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
  3. Andrew B. Abel & Avinash K. Dixit & Janice B. Eberly & Robert S. Pindyck, . "Options, the Value of Capital, and Investment," Rodney L. White Center for Financial Research Working Papers 15-95, Wharton School Rodney L. White Center for Financial Research.
  4. Balmann, Alfons & Musshoff, Oliver, 2002. "Real Options and Competition: The Impact of Depreciation and Reinvestment," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24934, European Association of Agricultural Economists.
  5. Isik, Murat & Coble, Keith H. & Hudson, Darren & House, Lisa, 2002. "A Model Of Entry-Exit Decisions And Capacity Choice Under Demand Uncertainty," 2002 Annual meeting, July 28-31, Long Beach, CA 19797, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Almas, Lal K. & Amosson, Stephen H. & Marek, Thomas H. & Colette, W. Arden, 2003. "Economic Feasibility Of Precision Irrigation In The Northern Texas High Plains," 2003 Annual Meeting, February 1-5, 2003, Mobile, Alabama 35249, Southern Agricultural Economics Association.
  7. Conrad, Jon M. & Kotani, Koji, 2005. "When to drill? Trigger prices for the Arctic National Wildlife Refuge," Resource and Energy Economics, Elsevier, vol. 27(4), pages 273-286, November.
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Cited by:
  1. Colette, W. Arden & Almas, Lal K., 2004. "Estimating The Mvp And Optimum Irrigation Level For Grain Sorghum Utilizing Evapotranspiration Requirements For The Texas Panhandle," 2004 Annual meeting, August 1-4, Denver, CO 20139, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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